Legal versus equitable security interests
Legal versus equitable security interests

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Legal versus equitable security interests
  • Legal or equitable security?
  • Which types of security can be legal and/or equitable?
  • Key advantages of legal security
  • Key advantages of equitable security

Lenders will often take security as support for a borrower's obligations under a loan. Taking security means that they will have certain rights over the secured assets in the event that the borrower fails to repay the loan.

English law recognises four types of security interest:

  1. mortgages

  2. charges

  3. pledges, and

  4. liens

For an overview of each of these types of security, see Practice Note: Types of security; for information on mortgages, see Practice Note: Mortgages; for information on charges, see Practice Note: Fixed and floating charges; and for information on pledges, see Practice Note: Pledges.

This Practice Note explains:

  1. the difference between legal and equitable security interests

  2. which types of security can be legal and which types can be equitable (or both)

  3. the key advantages of legal security

  4. the key advantages of equitable security

Legal or equitable security?

The security interest conferred on the secured party will be either legal or equitable. Certain security interests can be either legal or equitable, some are always legal and others equitable. This will depend on the type of security taken and in the case of mortgages, whether the criteria for a legal mortgage is met. For more information, see Mortgages.

Mortgages can be legal or equitable but charges are equitable as they involve no transfer of title, legal or equitable. Pledges are always legal and liens